Citigroup Cuts Capital Ratio Target to 9.5%

Feb. 21 (Bloomberg) -- Citigroup Inc. lowered its target
for the firm’s capital ratio after the Federal Reserve made the
bank increase the portion of its equity that supports
operational risks.

Citigroup cut its target Basel III Tier 1 common capital
ratio to 9.5 percent from 10 percent, the New York-based company
said today in a statement. The ratio’s current level stands at
10.1 percent, and the bank will still be above required minimums
for common capital as well as the proposed supplementary
leverage ratio, Citigroup said. The ratios are designed to
ensure banks have a big enough cushion to withstand losses.

The Fed required the bank to boost its tally of risk-weighted assets that reflect operational matters to $288 billion
from $232 billion, citing “the overall operating environment
for the banking industry,” Citigroup said. The increase was a
stipulation for approval of the bank’s ability to use a more
flexible “advanced approach” to estimate risk-weighted assets.

The Fed and the Office of the Comptroller of the Currency
said today eight of the biggest bank holding companies could use
the advanced approach starting in the second quarter, including
Citigroup, JPMorgan Chase & Co., U.S. Bancorp, Goldman Sachs
Group Inc. and Morgan Stanley.

While the advanced approach yields a higher ratio for most
of the biggest banks, regulators will still examine lenders’
capital under both advanced and standardized approaches.

Not Included

Bank of America Corp., ranked second by assets in the U.S.,
and Wells Fargo & Co., the biggest home lender, weren’t included
among today’s group. Spokesmen for the Fed and Bank of America’s
Jerry Dubrowski declined to comment. Wells Fargo’s Mary Eschet
didn’t have an immediate response.

Details of the Fed’s internal reasoning typically aren’t
released. The absence of the two banks suggests they are
“further behind than their peers on the quality of their data
collection and risk governance to be able to get the approval,”
said Mayra Rodriguez Valladares, managing principal at New York-based MRV Associates, which trains bank examiners and finance
executives. “They’ve had multiple acquisitions at the height of
the crisis and it takes years to integrate those into their
systems.”

Bank of America and Wells Fargo both saw their capital
plans pass the Fed’s stress tests last March, clearing them to
buy back shares. Shares of both companies as well as Citigroup
were little changed in New York trading.

JPMorgan, Goldman Sachs and Morgan Stanley are among other
U.S. banks that have seen increases in their operational risk-weighted assets as legal costs have mounted.

Citigroup’s additional risk-weighted assets lowered its
ratio from the 10.5 percent it reported last month. The bank
ranks third by total assets among U.S. lenders.